Despite the underperformance of fixed income we discuss in this Spotlight guide why the value proposition of the asset class hasn't gone away. In particular we review how the RLAM management team use existing, proven funds to actively manage consistent monthly income streams and adapt the portfolio to changing interest rate and credit market factors.

Within this guide, you will find some surprising survey results from FE, a selection of adviser opinions and some Architas views too. We hope this guide will provide you with some food for thought on this burning issue.

Biotechs outperforming larger pharmaceuticals

Over the past quarter, biotech stocks have rallied, outperforming the US market by 22%. This compare...

Over the past quarter, biotech stocks have rallied, outperforming the US market by 22%. This compares well to larger US pharmaceuticals, which have underperformed by around 5%, according to Keith Burdon, investment manager, UK, at Britannic Asset Management.

Burdon says the rally in US biotech stocks is partly due to the technology rebound in the country and partly due to stock-specific factors.

Antony Milford, fund manager of the Framlington Health fund, says biotech stocks have rallied from a very depressed situation between February and March this year. He argues that, while year to date their prices are still down on last year, biotechs have performed better than technology stocks and some of the larger drug companies.

Milford says the newsflow coming out of the sector is still reasonable, noting that the main issue concerns the Federal Drugs Administration (FDA) and its more cautious approach to approving drugs. He says this has been influenced by the fact that a lot of drugs have been removed from the market due to side effects in the past few years.

Jackie Bowie, US investment manager at Aegon, says this has caused negative newsflow in the sector as many smaller companies, which are reliant on drugs getting on the market quickly, are being hampered by the FDA's cautiousness.

Bowie says the positive newsflow in the sector has been caused by a number of successful clinical trial results. She believes that, in the future, there will be a number of data presentations at different stages of clinical trials, which will see the price of stocks move up.

On the whole, Bowie says it is still a market where investors are risk averse. Biotechnology, she says, is still a sector with a number of high-risk factors and high-risk valuations.

'Although, as we are seeing at the moment, there can be sharp rallies in the sector,' Bowie says. 'Over one year, the sector has not done a lot and, on a 12-month view, it is still risky.'

An area that Bowie claims has had its day in the sun is genomics. She believes investors have lost interest in this area, which was very popular in 1999 and going into 2000, and companies that sell genetic sequencing equipment are suffering as a result.

Milford says the recent rally has largely come about because biotech stocks are so cheap at the moment, which has generated a lot of interest in the US over the past few months.

He says: 'There was a lot of value in the sector and we are now in a much more stable environment than we were in the first quarter of the year.'

According to Bowie, a stock that has performed strongly year to 2 July 2001 is Chiron, up 11%. On a three-month scale, Idec Pharmaceuticals is up 75%, and Protein Design is up 126% over the past quarter.

Bowie says it is the smaller and more specialist biotech names that have outperformed, as opposed to larger names such as Biogen and Amgen. While the Amex Biotechnology index is up around 30% in dollar terms over the past quarter, she points out, Biogen is down 13% and Amgen is only up around 9%.